“Lockdowns are like holding your breadth, there is only that much time that you can do it for”
In my last blog, I had mentioned to all of you reading this that the happiness of a stimulus would be short lived and any rally the any stimulus would provide will fizzle out, which if you’ll notice is exactly what happened.
Markets gapped up 400 points post the announcement by our honorable prime minister on Tuesday evening and immediately started to sell off. Infact, it continued to fall and sell off over the course of the next few days also.
Why is it that such a magnanimous package of Rs.20 lakh crore was still not able to cheer our indices and stocks?
First and foremost, the problem with us is that, we are a country that expects to have a stimulus package as big as any developed nation in the world, however if you see our per capita income, it would be nowhere close to their and would still stand only at 2500$.
I think this is also the main reason why majority of the announcements have come towards the smaller income groups and Msme groups. Moreover it is interesting to note that the Rs. 20 lakh crore is not actually a Rs .20 lakh crore package. A lot of it, is part of contingent liabilities and actually doesn’t come out of the government’s pocket.
The impact and sell off in the financial markets stand point is 2 fold essentially:
1)Global markets playing spoil sport in the tenure of the announcements to an extent dampened sentiments, To an extent only though.
2)There were not enough sector specific measures announced for examples with respect to lower GST rates. In fact, lot of sectors went unnoticed in my opinion.
The third reason although slightly less important is because “the 20 lakh crore”seemed to be too huge an amount for a country of our GDP size. So people started fearing things like; is India going to be able to accommodate such a large package without significant borrowing or printing. And if they indeed to do any significant borrowing, then what effect will this have in the upcoming years and our entire fiscal deficit.
But let me clear the air once again and at the risk of sounding repetitive, the figure of 20 lakh crore is comprised of a lot of contingent liabilities and is not essentially Rs.20 lakh crore.
Now coming to Nifty, the last time I mentioned to you’ll that Nifty would trade in a wide but range bound manner. This theory has played out well the whole of last week and if you look at our options data, you will notice that this will continue to be the flavor unless you have any fresh developments from the global markets or some other news flow trickles in. Also, the largest amount of OI is still at the 9000pe and 10000ce option as it was in the previous week, indicating that a small bounce is imminent as we are close to the lower end of the range.
Next, not sure how many of you noticed, but even though our markets sold off last week, India VIX did not rise. This implies that the fall if and when it happens, may not be deep.
For the upcoming days, I keep my view intact for a bigger range bound move to continue.
Also, for my friends who trade options, keep a watch on shorting far Otm puts of PVR when price comes around 700-750 odd levels, keeping in mind the disclaimer though and the fact that options selling should only be done by professional and educated traders.
